Alex Company reported the following information for 2022. Alex Company Comparative Balance Sheets December 31 Assets 2022 2021 Change Increase/Decrease Cash $59,000 $36,000 $23,000 Increase Accounts receivable 62,000 22,000 40,000 Increase Inventory 44,000 –0– 44,000 Increase Prepaid expenses 6,000 4,000 2,000 Increase Land 55,000 70,000 15,000 Decrease Buildings 200,000 200,000 –0– No Change Accumulated depreciation—buildings (21,000 ) (14,000 ) 7,000 Increase Equipment 183,000 68,000 115,000 Increase Accumulated depreciation—equipment (28,000 ) (10,000 ) 18,000 Increase Totals $560,000 $376,000 Liabilities and Stockholders’ Equity Accounts payable $43,000 $40,000 $3,000 Increase Accrued expenses payable –0– 10,000 10,000 Decrease Bonds payable 100,000 150,000 50,000 Decrease Common stock ($1 par) 230,000 60,000 170,000 Increase Retained earnings 187,000 116,000 71,000 Increase Totals $560,000 $376,000 Alex Company Income Statement For the Year Ended December 31, 2022 Sales revenue $941,000 Cost of goods sold $475,000 Operating expenses 231,000 Interest expense 12,000 Loss on disposal of plant assets 2,000 720,000 Income before income taxes 221,000 Income tax expense 65,000 Net income $156,000 Additional information: 1. Operating expenses include depreciation expense of $40,000. 2. Land was sold at its book value for cash. 3. Cash dividends of $85,000 were declared and paid in 2022. 4. Equipment with a cost of $166,000 was purchased for cash. Equipment with a cost of $51,000 and a book value of $36,000 was sold for $34,000 cash. 5. Bonds of $50,000 were redeemed at their face value for cash. 6. Common stock ($1 par) of $170,000 was issued for cash. Use this information to prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Alex Company reported the following information for 2022.
|
Alex Company
Comparative Balance Sheets December 31 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Assets | 2022 | 2021 |
Change
Increase/Decrease |
|||||||
|
Cash
|
$59,000 | $36,000 | $23,000 | Increase | ||||||
|
|
62,000 | 22,000 | 40,000 | Increase | ||||||
|
Inventory
|
44,000 | –0– | 44,000 | Increase | ||||||
|
Prepaid expenses
|
6,000 | 4,000 | 2,000 | Increase | ||||||
|
Land
|
55,000 | 70,000 | 15,000 | Decrease | ||||||
|
Buildings
|
200,000 | 200,000 | –0– | No Change | ||||||
|
|
(21,000 | ) | (14,000 | ) | 7,000 | Increase | ||||
|
Equipment
|
183,000 | 68,000 | 115,000 | Increase | ||||||
|
Accumulated depreciation—equipment
|
(28,000 | ) | (10,000 | ) | 18,000 | Increase | ||||
|
Totals
|
$560,000 | $376,000 | ||||||||
| Liabilities and |
||||||||||
|
Accounts payable
|
$43,000 | $40,000 | $3,000 | Increase | ||||||
|
Accrued expenses payable
|
–0– | 10,000 | 10,000 | Decrease | ||||||
|
Bonds payable
|
100,000 | 150,000 | 50,000 | Decrease | ||||||
|
Common stock ($1 par)
|
230,000 | 60,000 | 170,000 | Increase | ||||||
|
|
187,000 | 116,000 | 71,000 | Increase | ||||||
|
Totals
|
$560,000 | $376,000 |
|
Alex Company
Income Statement For the Year Ended December 31, 2022 |
||||
|---|---|---|---|---|
|
Sales revenue
|
$941,000 | |||
|
Cost of goods sold
|
$475,000 | |||
|
Operating expenses
|
231,000 | |||
|
Interest expense
|
12,000 | |||
|
Loss on disposal of plant assets
|
2,000 | 720,000 | ||
|
Income before income taxes
|
221,000 | |||
|
Income tax expense
|
65,000 | |||
|
Net income
|
$156,000 |
| Additional information: | ||
| 1. | Operating expenses include depreciation expense of $40,000. | |
| 2. | Land was sold at its book value for cash. | |
| 3. | Cash dividends of $85,000 were declared and paid in 2022. | |
| 4. | Equipment with a cost of $166,000 was purchased for cash. Equipment with a cost of $51,000 and a book value of $36,000 was sold for $34,000 cash. | |
| 5. | Bonds of $50,000 were redeemed at their face value for cash. | |
| 6. | Common stock ($1 par) of $170,000 was issued for cash. |
Use this information to prepare a statement of
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